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Multistate – Understanding Bitcoin And Taxes

As cryptocurrencies like Bitcoin become more mainstream, the Internal Revenue Service is paying close attention. In fact, from the close of 2018 and onward, we’re looking at monumental changes in how the IRS is considering these technologies, at least financially.

The IRS currently considers cryptocurrency to be property. But that doesn’t mean one should avoid reporting gains. The agency has always been more lenient on taxpayers and investors who jump the gun in this regard. Coming forward sooner rather than later can help prevent stricter penalties or fines because of non-reporting.

Recently, the agencyreleased a friendly “reminder” that taxpayers must report all income from virtual currency transactions when filing federal tax returns. Transactions and profits from digital currencies are taxable by law, like “any other property” owned. If anything, this shows the IRS is planning to ramp up their focus on crypto and virtual earnings.

What happens if you don’t listen?

Failing to report income from virtual currency can lead to audits, as well as penalties on non-payments, including interest. The agency also states that in “extreme situations,” those affected can face “criminal prosecution,” including charges for tax evasion and filing a false tax return. If convicted, one may be subject to a fine of up to $250,000 and a sentence of five years in prison. Yikes.

It’s no surprise the IRS is issuing reminders. Currently, U.S. households are estimatedto owe about $25 billion in capital gains due to digital currency holdings — andalmost no one is paying. So, it’s safe to say at some point soon, the IRS is going to get serious about collecting taxes for virtual currencies.

When they do finally put their foot down, it’s not a good idea to get caught up in the crossfire. If you haven’t already, you should make tax reporting of your virtual currency gains and income a primary focus.